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Insuring a Condo or Co-Op

Insuring a condo or co-op is a little different from insuring a typical home because you don't own the entire building. Usually, two policies are involved: the master policy provided by the condo association or co-op board, and your individual policy, which is typically written on a standard homeowners form, known as Form HO-6. If you know what the master policy covers and purchase individual coverage to fill in the gaps, you should have the protection you need.

The master policy

The common areas you share with other owners should be covered by a master policy. These areas usually include the roof, stairways, elevators, and basement. Check the condo or co-op documents to be sure. If physical damage occurs to these areas, the repairs are covered under the master policy's provisions. The master policy also offers protection for liability incurred in the common areas. This means that if your guest or another person suffers a bodily injury while in a common area, the insurance company will step in to defend you and the other unit owners in the event of a lawsuit.

Make sure that the master policy provides broad coverage. A cheap policy may save you and your fellow residents some money in the short term but may prove disastrous if the coverage is too limited. The condo association or co-op board should be able to provide you with the appropriate documents that explain the coverage. If the coverage appears inadequate, take steps to ensure that the association or board purchases a comprehensive policy.

Additional coverage for improvements

It is important for you to know exactly what the master policy covers in order for you to purchase appropriate individual coverage for your unit and its contents. For instance, the master policy may cover individual units as they were originally built, but not improvements you have made to your property. You may need to buy an endorsement to cover any additions and improvements. A typical personal condo or co-op policy covers your personal property and other property, including private balconies, private entranceways, private garages, and other property that is your insurance coverage responsibility under your condo or co-op agreement.

What your personal policy will and will not cover

Although the liability coverage on Form HO-6 is similar to that found in other homeowners policies, the property coverage is less comprehensive than that under the HO-3 form. This policy covers only the physical damage to your property and possessions caused by named perils specifically identified in the policy. These perils include fire, lightning, storm, explosion, riot, aircraft, smoke, vandalism, theft, broken glass, and volcanic eruption, to name a few. Review the perils covered by your policy, and remember that you may have the option to purchase coverage to protect you against additional perils. Certain perils specifically not covered are listed in the exclusions section of your policy. These typically include damage due to enforcement of building codes, earthquakes, flooding, power failures, neglect, war, nuclear hazard, or intentional acts.

The dwelling policy alternative

You might be able to save money on personal condo or co-op coverage by purchasing a dwelling policy rather than a homeowners policy. Some comprehensive dwelling policies provide full coverage for property, liability, and theft. With others, you only need to buy the property coverage portion of the policy. This can save you money on your premium payments, but be certain your condo association or co-op board provides a strong master policy.

Loss assessment

Check your personal policy and pay particular attention to the paragraph titled Loss Assessment. This paragraph entitles you to collect up to $1,000 for loss assessments charged to you by the condo or co-op association. Loss assessments typically result from losses suffered by the condominium or co-op as a whole, such as damage to a roof that is not covered by the master policy at all or is subject to a large deductible. These uninsured damages are then passed through to all unit owners.

Loss settlement

Your policy will specify the amounts you can recover in the event of a loss. Depending on the provisions of your personal policy, your insurance company may pay the total replacement cost of your property, which would allow you to replace or repair your lost or damaged items. Or, you may receive only the actual cash value (ACV) of your property, which is generally the current fair market value or the property's purchase price minus depreciation. Your settlement will almost always be less under the ACV method. Also, certain property items are assigned a specific dollar value for loss purposes, no matter what its age or condition. Loss settlement is always subject to the coverage limits described in your policy.

Read your policy before making a claim

To qualify for payment from your insurance company, you must meet the conditions spelled out in your homeowners policy. Some conditions dictate your responsibilities before a loss occurs, and some dictate the actions you must take after the loss to remain eligible for coverage. Read your policy carefully to familiarize yourself with your responsibilities. If you need assistance, consult your agent to go over the details in your policy. Be sure you use an agent who is knowledgeable about condo and co-op policies.

Coordination of benefits under the master policy and personal policy

When a loss is covered by both the condominium's or co-op's master insurance policy and your individual policy, your homeowners insurance will pay only for the balance of the loss that remains after the master insurance policy pays 100 percent of its limit.